Dear Ross, two years ago my parents ran into debt problems and went to see an insolvency “expert.” He reviewed their information and informed them the equity in their home was at risk. He advised I register a mortgage for $140,000 on their property using my company as the ‘lender’. We didn’t actually lend my parents any of this money.
This way, when they were presented to a trustee, there would be little to no equity for them to scoop. My parents are not getting any younger Ross – they cannot lose this house!
But two years later and they are still not discharged. My dad has since lost his job and money is extremely tight. But the trustee has opposed the mortgage transaction and asked for proof that the money changed hands and if it did, to show where it then went. We don’t know what to do now; what is your advice Ross? GM, Hamilton, Ontario.
To be blunt there is not much you can do short of pleading ignorance. This is a mess. You have all been caught with your hands in the cookie jar, and I am sure this is evident to your trustee, who is an officer of the court. If you now try to create a false money trail after the fact there is an excellent chance you all will be charged with fraud.
Given their combined debts were almost $200,000 the trustee would be looking for a settlement with their creditors to the value of your parents’ home equity.
If this matter remains unresolved and ultimately appears before a Registrar, s/he will take a dim view of this. Depending on your testimony, your education and life experience, the Registrar maybe willing to give you all the benefit of the doubt that this was naivety rather than wilful fraud. But the piper will still have to be paid. Might be time to consider legal representation.
My guess is the equity at the time of bankruptcy will have to repaid before your parents can be discharged from their bankruptcy. They can request mediation for a lesser amount – with consideration for realtor fees, legal fees and mortgage penalties in the event the house is sold.
The only true way to end this nightmare (unless you and your siblings are willing to pony up the $140,000) is if your parents sell the house; settle with the trustee, and get on with their lives.
[notice]Ross Taylor is a credit specialist and mortgage agent who blogs frequently at ASKROSS. If you have any questions about anything financial, send him an email at firstname.lastname@example.org, he answers everyone.[/notice]